Imagine that you have been invited for a stand-up comedy show of a well-known comic. You are excited about the show, arrive well dressed with a date in arm, get your favorite drink and are sitting in the front row with bated breath. Then your comic comes on stage, everyone starts clapping (including you), the atmosphere is full of excitement and anticipation. Just as the comedian begins to speak, you realize that his act is in Russian, Spanish or Klingon i.e. whatever language is completely foreign to you and the audience. For the first 3-5 minutes, you try hard to understand what he is saying then look around to see a similar look of bewilderment on everyone’s faces. Some people leave almost immediately, and the remaining make heckling sounds, the artist looks bemused but act continues, rooms starts emptying out and finally you, who has checked out mentally a while ago, decide that it had been enough and join the beeline to the exit. How inclined are you to attend a show with that comic in the line-up the next time around?
Unfortunately, several founders are guilty of being that incomprehensible comic. Using acronyms or words that only your peer group understand may give the smart founder several accolades at startup events but leave investors (like myself) flummoxed about what the business really does. In fact, I feel that if a founder cannot explain what they do in layman’s terms to someone who has no knowledge of the technical jargon of that industry, then the business is too complex for me to invest in. A founder may feel short-changed because as an investor, I am supposed to be “in the know” but the truth of the matter is that I am not supposed to be the knowledgeable person in the room about their industry, the founder is!
This video from the show Silicon Valley aptly explains what I fear as an investor
A founder that is unable to explain what their business does to me in terms that I understand, is running a business that most customers won’t understand. To educate a customer entails a long sales cycle, and I find it is best to avoid such long-tail plays. However, when a founder is able to explain a complex model in simple terms, it gives me immense confidence in the fact that prospective customers will understand it too and therefore not hesitate to adopt it. Not only that but also the founder will easily be able to train lay people on selling his/her product or service and achieve targeted sales without hiring expensive talent. For the investor to have such confidence has tremendous value.
Here are some of the tools that founders can use to explain complex business models:
- Paint a picture of what their target customer currently does to solve the problem and how their product/service will change their life
- Dumb things down by using simple everyday terms that anyone can understand
- Use check-backs like does that make sense? to ensure that your audience hasn’t lost you
There are many other techniques that founders could use to present an impressive but comprehensible pitch. The best way to test a pitch is to present to the most challenging audience i.e. people that wouldn’t understand their business at all. These unfriendly audiences will force you to KISS (Keep It Simple Stupid) for the investor, which is exactly what we are looking for!
So, don’t try to challenge the intelligence of the mere mortal investor and just KISS for us!